Minnesota’s Economic News – W/E 4/9/21
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We are entering a traumatic time of year for millions of Americans. Tax season. It is the time of year when you have to dig out forms you put someplace you forgot, and pay a specialist a few couple of hundred dollars to find out how much of your money the government is going to take. If you’re ‘lucky’, you might find that the government took too much of your money and you are due a refund. A good chunk of this refund will be paid to the specialist in fees. It is essentially an interest free loan to the government with a brokerage fee which would be the envy of Wall Street.
This season looks to be a particularly traumatic. The IRS says the average refund so far this year is about 8% lower than a year ago. As this is the first tax season since the passage of the Tax Cuts and Jobs Act, some have been quick to draw a link between the Act and lower refunds. Presidential hopeful Kamala Harris tweeted
The average tax refund is down about $170 compared to last year. Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%.
— Kamala Harris (@KamalaHarris) February 11, 2019
This is complete drivel, as Twitter was quick to point out
This is completely nonsensical. We don't measure our total tax burden by the tax refund size.
By this logic, Kamala Harris could edit her proposed $3 trillion tax cut by just having the IRS massively over-withhold, and then calling the April 15th refund a "$3 trillion tax cut." https://t.co/WHKhZcvTUr
— Brian Riedl 🧀 (@Brian_Riedl) February 11, 2019
This is a bad tweet.
Yeah, withholding changes have caught some people off guard, but the TCJA is not a middle class tax increase. https://t.co/bAGgFV2WjE
— Kyle Pomerleau (@kpomerleau) February 11, 2019
Um, you do know that just because the tax refund is lower does not mean people are paying more in taxes. Because a senator could not be that economically illiterate right? https://t.co/asBXSj4itg
— Marc Thiessen (@marcthiessen) February 12, 2019
I hate to pile on but this is basically the opposite of calling the tax law what it is.
Sen. Harris undoubtedly knows that most taxpayers paid less, and that slightly more accurate withholding of a lower tax burden is a good thing, but she's hoping others won't figure that out. https://t.co/iOov5WaUox
— Jared Walczak (@JaredWalczak) February 12, 2019
I often think politicians are just misguided, but this seems a deliberate attempt to mislead. She should retract. https://t.co/sqHoDbrl3G
— Ryan Bourne (@MrRBourne) February 11, 2019
Changes in the size of your tax refund are not an inverse measure of the size of your tax burden. It is, instead, a measure of the amount of money you loaned interest free to the government because of inaccurate withholding. Simply put, changes to tax withholding throughout the year have made it more accurate this year. Consequently, you’ve been making fewer and smaller interest free loans to the government. That is a good thing.
As Nicole Kaeding and Erica York explain for the Tax Foundation, the Tax Cuts and Jobs Act lowered tax rates, doubled the standard deduction, doubled the child tax credit and expanded eligibility, and limited the alternative minimum tax. It also limited several deductions, such as for state and local taxes paid and mortgage interest. Approximately 80 percent of filers had their taxes cut by the Tax Cuts and Jobs Act, while only 5 percent saw their taxes increase. To see how your tax burden has been changed by the Act, those are the facts.
John Phelan is an economist at the Center of the American Experiment.